Dollar trades mixed ahead of US-China trade signing, sterling drops on poor UK growth data

Market Review - 14/01/2020  00:00GMT  

Dollar trades mixed ahead of US-China trade signing, sterling drops on poor UK growth data

The greenback traded mixed against its peers on Monday on improved risk sentiment ahead of US and China's Phase 1 agreement signing on Wednesday. Sterling dropped across the board as the release of poor UK growth data bolstered the case of a rate cut from the Bank of England.   
Reuters reported the Phase 1 trade deal to be signed this week by China and the United States "stops the bleeding" but does not end the trade war, a senior U.S. Chamber of Commerce official said on Monday, warning that significant challenges remain.  
  
Myron Brilliant, the chamber's Executive Vice President, told a media briefings in the Chinese capital that there is "clearly a sigh of relief from both sides" with the agreement, expected to be signed on Wednesday in Washington, and that the depth of the Phase 1 was more positive than initially thought.   "Implementation of Phase 1 will be important to building trust and certainty, building off the success of the negotiation," said Brilliant, who said he had been briefed on the text of the accord but not seen it.    But while the Phase 1 accord "stops the bleeding", he said. "at the same time it's important that the two sides demonstrate a commitment to moving forward on the Phase 2 negotiations".  
  
Versus the Japanese yen, dollar traded with a firm bias in thin Asian trading as Japanese markets were closed for Coming of Age holiday and gained to 109.64 ahead of European open. Intra-day ascent accelerated in Europe and price rose to a 7-1/2 month high at 109.94 in New York on broad-based selling in jpy as risk sentiment improved ahead of US and China's Phase 1 agreement signing on Wednesday.  
  
The single currency briefly dropped to session lows at 1.1113 in New Zealand before rebounding to 1.1131 in Asian morning. The pair then edged up to 1.1135 in European morning on cross-buying of euro especially vs sterling. However, price pared its gains and retreated to 1.1113 again in Europe before erasing its losses and rallied to an intra-day high of 1.1146 in New York on cross-buying in euro, especially versus sterling and then swung sideways.  
  
The British pound opened lower to 1.3021 in New Zealand on dovish comments from Bank of England's policymaker Gertjan Vlieghe on Sunday before staging a rebound. However, price met renewed selling at 1.3045 ahead of Asian open and retread to 1.3022 ahead of European open. Intra-day decline accelerated in European morning after the release of poor UK growth data pushed the case of a rate cut from the Bank of England and price hit an a 17-day low at 1.2961 ahead of New York open on sterling's broad-based weakness before staging a recovery to 1.3003 near New York close.  
  
Reuters reported Bank of England policymaker Gertjan Vlieghe on Sunday suggested that he will vote for a cut in interest rates later this month, but his final decision will depend on the country's growth data.   "I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer," Vlieghe, a member of the bank's Monetary Policy Committee, told the Financial Times.   Vliegh's comments come after policymaker Silvana Tenreyro on Friday inclined towards an interest rate cut in the coming months, adding to suggestions that the central bank is edging towards pumping more stimulus into the economy.  
  
Reuters reported Britain's economy grew at its weakest annual pace in more than seven years in November, after output fell sharply that month, though a stronger performance in previous months brightened the picture slightly.    Monday's official figures showed the economy in November was just 0.6% larger than a year before, the weakest expansion since June 2012, down from annual growth of 1.0% in October, which represented an upward revision from previously reported data.   Output in November alone shrank by 0.3%, the biggest drop since April, when businesses ran down stocks of goods built up in anticipation of a disruptive no-deal Brexit at the end of March, the Office for National Statistics said. Economists polled by Reuters had expected a flat reading for the month.  
  
In other news, Reuters reported the euro zone's economic growth is expected to reach 1.1% this year, supported by fiscal easing, Burkhard Balz, a member of the executive board of the German central bank, told a financial forum in Hong Kong on Monday.  Balz said inflation was expected to decline marginally to 1.1% in 2020 from 1.2% last year, mainly due to lower energy prices, but it is seen increasing to 1.6% in 2022 as economic activity picks up.   
  
Data to be released on Tuesday:    
New Zealand NZIER business confidence, building permits, Japan current account, trade balance, Eco watchers outlook, Eco watchers current, China exports, imports, trade balance and U.S. core CPI, CPI, real weekly earnings, redbook, Federal budget.